Psion gambles on licensing its software

The electronics group has revealed sparkling results and a defensive plan.
Psion, the maker of Europe's market-leading electronic organiser and one of Britain's most successful small electronics exporters, is to license out its technology to other manufacturers to avoid the marginalisation suffered by Apple in the personal computer market.

David Potter, whose 25 per cent stake in the company he founded in the late 1970s is now worth pounds 60m, announced the decision with a sparkling set of full-year profits for the 12 months to December.

Describing the move as "defensive", Mr Potter said the issue of licensing Psion's software had been "a matter of hot debate for some time". He admitted that it was a gamble, but hoped the decision would give Psion a much higher market penetration and a quantum leap in the number of organisers on the market for the company to supply with new products and applications.

Yesterday's figures confirmed a remarkable recovery at Psion since recession and the high cost of new product development sent the company pounds 2m into the red in 1991. Last year, after a 48 per cent leap in sales from pounds 61.3m to pounds 90.6m, pre-tax profits jumped 78 per cent to pounds 11.7m (pounds 6.55m). Stripping out a one-off profit in 1994 from the sale of an investment, underlying profits actually doubled.

The driving force behind the profits improvement was strong growth in the Series 3 personal organiser, the descendant, with a thousand times more computing power, of the original electronic diary and address books sported by the yuppies of 10 years ago. As well as dominating the UK market, Psion has at last made real inroads into the competitive US market, where in the late 1980s the company was out-invested by its main rivals, Sharp and Hewlett Packard.

Psion's inability to compete with its giant competitors, who lost money heavily in the early years of their attack on the US market, rankled with Mr Potter, a vocal supporter of British manufacturing. He believed innovative companies like Psion were given too little support by City investors, who focused on short-term returns.

Confirming that long-term view, Psion substantially increased its research and development effort in 1995, increasing the number of employees in that area by 71 per cent. The proportion of sales devoted to generating new products increased from 4.4 per cent to 6.2 per cent. Capital expenditure also soared, with Psion's manufacturing plant at Greenford, Middlesex, increasing by 50 per cent.

Organisers generate about two-thirds of Psion's sales, but there was also strong growth from its industrial products, hand-held computers used by a wide range of users from engineers repairing pinball machines to airline ground crew verifying that a jet's fuel tanks are as full as the cockpit dials suggest.

Sales of credit card-sized modems doubled during the year as Psion cashed in on the increasing demands from corporate users for "connectivity", the ability for executives on the move to link up with computer networks at head office.

Psion's shares jumped 60p to 1,015p yesterday as the market warmed to the figures and a bullish message from the company on the first two months trading of 1996. After a roller-coaster ride on the stock market since flotation in 1988, the shares suddenly took off a year ago, when they were trading at less than 300p. They have risen almost without pause ever since. A two-for-one scrip issue is planned to reduce the now-heavy price.

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